COMMISSIONER OF INCOME TAX AND ANOTHER Vs. SWARNAGIRI WIRE INSULATIONS PVT. LTD.

JUDGEMENT

(1.) This appeal was admitted to consider the following substantial question of law:

(2.) The said order was confirmed in appeal by the Commissioner of Income-tax (Appeals) by holding that the case of the assessee is in contravention of the provisions of law inasmuch as, firstly, that the appellant has set off the depreciation loss/income from power generation business against the profits of manufacturing of copper wires and, secondly, that the non-taxable income under section 80-IA is set off against non-eligible business income of the assessee. Thirdly, the depreciation from windmill has not got absorbed fully against eligible business profits. All these cumulative factors entail the assessee disqualified to claim set off of such loss against the non-eligible business profits being in contravention to the relevant provisions of law. Therefore, the action of the Assessing Officer to allow the depreciation loss of Rs. 73,20,339 to be carried forward for set off against the eligible business and bringing the profits of Rs. 60,00,829 attributable to the regular business activity of manufacturing of copper wires is justified.

(3.) Against the said order of the Commissioner of Income-tax (Appeals), the assessee preferred an appeal. The Tribunal held the carried forward loss of the eligible business was required to be set off first against the income of the subsequent years of eligible business while determining the profits eligible for deduction under section 80-IA of the Act and set off losses from other sources under the same head is not permissible. However, it should not forgotten that section 80-IA of the Act is a beneficial section permitting certain deduction in respect of certain income under Chapter VI-A of the Act. A provision granting incentive for promotion of economic growth and development in taxing statutes should be liberally construed and restriction placed on it by way of exception, should be construed in a reasonable and purposive manner so as to advance the objects of the provision. It is a generally accepted principle that deeming provision of a particular section cannot be breathed into another section. Therefore, the deeming provision contained in section 80-IA(5) cannot override section 70(1) of the Act. The assessee incurs loss after claiming eligible depreciation. Hence, section 80-IA becomes insignificant since there is no profit from which this deduction can be claimed. Section 70(1) comes to the rescue of the assessee, whereby he is entitled to set off the losses from one source against income from another source under the same head of income. However, once set off is allowed under section 70(1) from the income from another source under the same head, another deduction on the same count is not permissible, i.e., during the subsequent years if the assessee makes surplus profits after claiming eligible allowances and he is entitled to claim deduction under section 80-IA, the earlier benefit given under other sections of the Act should be taken into account before granting deduction under section 80-IA. Therefore, the order of the Commissioner of Income-tax (Appeals) came to be set aside and the assessee was given the benefit of setting off the profits of one business against the losses incurred in another business.